Getting In Cheap On BE Semiconductor Industries N.V. (AMS:BESI) Might Be Difficult

BE Semiconductor Industries N.V.'s (AMS:BESI) price-to-earnings (or "P/E") ratio of 61.7x might make it look like a strong sell right now compared to the market in the Netherlands, where around half of the companies have P/E ratios below 16x and even P/E's below 10x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

BE Semiconductor Industries hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for BE Semiconductor Industries

If you'd like to see what analysts are forecasting going forward, you should check out our free report on BE Semiconductor Industries.

How Is BE Semiconductor Industries' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like BE Semiconductor Industries' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 25%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 26% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 44% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 14% per year, which is noticeably less attractive.

With this information, we can see why BE Semiconductor Industries is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that BE Semiconductor Industries maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for BE Semiconductor Industries (1 is a bit unpleasant!) that you need to be mindful of.

You might be able to find a better investment than BE Semiconductor Industries. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.